Understand and project demand (enrollment).
What if I have 15 entrees and customers rarely order a couple of them? Also, one of the main ingredients is not used for any another entrée. Would you discontinue the item?
Why is it that in higher education, we continue to add to our menu without retiring offerings or majors despite changes in enrollment?
This is critical because we expect a 10-20 percent drop in the number of traditional age students over the next 12 years. It is time to examine our menu while considering what our enrollment will be 4-10 years from now. After all, it is easier to scale up than scale down.
Remember, finance is a lagging indicator. It tallies what has already happened. By using that information to show trends and predict the future, we provide real value.
In higher education, our biggest challenge is that it takes us 2-4 years to remove a menu item. When my class size goes from 22 to 18 students, I can’t just order less. I can try to create specials and promote the offering to customers. Knowing that my margin is lower on some offerings but balances out across the menu allows me the flexibility to make more informed decisions.
As our class sizes get smaller, the cost of our support structure is not declining, thus the cost per student is rising. All of this makes it more critical than ever to understand and project demand. This is a conversation that expands well beyond the realm of finance.
Many of us have increased our menu offerings over time to meet customer demand, but we have not removed items from our menu, or changed the recipe for a dish that is not as popular as it once was.
Understand the total cost of the experience and set expectations for metrics related to enrollment and each role.
Let’s move out of the kitchen, to the front of house. Have you ever been to a restaurant where the food is amazing, but the service is terrible? It takes forever for them to take your order. Your drinks arrive wrong, and it is so loud you can’t hear. The food is the draw but without a positive experience the customer will not come back.
But that experience is different for each of us. My daughter loves Chipotle, and I love seafood and waterfront dining. Each type of experience has a different cost structure.
Customer support is less labor intensive for Chipotle because they are not going to each table multiple times and do not have dishes to wash. What if Chipotle tried to compete with fine waterfront dining and offered white linen tablecloths and custom cocktails? Would their cost structure change? Would customers be willing to pay more for this experience?
Many institutions have tried to compete by offering a competitive campus experience. The problem is pricing. Small institutions can’t take advantage of volume and offer variety, so decide what you are known for and double down on strategy.
Restaurants generally have a higher margin on the add-ons, like wine and cocktails, like auxiliaries in higher education. We know that the food is why customers come, and while they are having dinner, they will probably order a drink.
It’s important to understand the difference in margin between the food and the bar. How many of you know the margin of each? How many of you make a profit on room & board, but lose money on the instruction? We cannot have one without the other, but how do we reconcile this?
Each part of the restaurant has its role. The chef and kitchen staff should know what is expected of them in terms of quality, and margin metrics. If we don’t tell the kitchen (chair/deans) our expectations for margin, our market research data, or our predictions, the chef will continue to provide excellent meals (classes), no matter the cost. So be sure to understand each role, how they fit together and what expectations are for each role.
Give the customer what they want, not what we think they should have.
I’ve worked with over 40 institutions during the past 25 years and have served as an adjunct faculty member as well. It always puzzles me that we rarely talk about what the customer wants and what the data tells us about what the customer wants. Instead, we talk about what the customer should get because the chef knows best. The reality needs to be somewhere in between. The institution should understand clearly what type of experience they provide, and what their customers expect. Then, they should set expectations and metrics for the kitchen (academics) and front of house (auxiliary and student services). They should monitor metrics to see how customers are responding (enrollment) and adjust the offerings accordingly.
While on the topic of what the customer wants, some people love sports bars. I like to sit at the bar of any restaurant and have an appetizer and wine. I may go back again with friends and stay for a full dinner. Why do we not consider this option in higher education? Credentials, like certificates, with a clear path to convert to a degree are like trying an appetizer and coming back for more. Sixty percent of Americans do not attend college. Would this be a more accessible pathway?
I leave you to ponder what your customer wants. Is it a fine dining experience at a higher price tag, a sports bar with lots of action and simple food, or perhaps a highly specialized experience like an extensive raw bar selection. There is room for all. Decide which one you are and double down on that to give each customer what they want, not what you think they should have.
If you are interested in the common metrics that we use to analyze the cost and revenue drivers for educational institutions, click here to download.